Missouri state treasurer wants terror-free pension funds

Missouri's state treasurer, Sarah Steelman doesn't think pension funds should invest in companies doing business in terror-sponsoring nations. While her state has decided against agreeing to that,12 states have passed laws that in some way restrict pension funds from investing in companies with questionable practices. Here's the most interesting part about Steelman's campaign, from the Wall Street Journal:

Last summer, Ms. Steelman unveiled what she calls a "terror free" fund -- a small fund, intended as a model, designed to avoid investments in nations considered terror sponsors. In its first eight months of existence, her fund has returned 27%, she says. "People said fund performance was going to suffer. We've shown that's just not true."

While a strong track record over such a short period of time managing an amount of money far smaller than most pension funds isn't proof of anything, there is a substantial body of evidence to indicate that socially responsible investing and investment policies excluding companies with poor ethics do not inhibit returns. Consider the performance of Domini 400 Social Index: Since its inception in 1990, that index has averaged an annual return of 12.28% versus 11.71% for the S&P 500.

I like Ms. Steelman's idea, and public pension funds can make a powerful statement by divesting not just companies dealing with Iranian, but any company that is engaging in questionable business practices. I've seen no evidence that ethics inhibits returns. As Alan Greenspan once said "Material success is possible in this world and far more satisfying when it comes without exploiting others."